If you're considering a retirement plan for yourself andyour employees but are concerned about costs and administrative complexity,there are options worth exploring. One such option is a Simplified EmployeePension (SEP), which is particularly appealing to small businesses due to itsease of administration and the flexibility to decide on contributions annually.

Time to Save on 2023 Taxes with a SEP

You can still establish and contribute to a SEP for the 2023tax year right up to the extended filing deadline. For example, if you’re asole proprietor and extend your 2023 Form 1040 to October 15, 2024, you haveuntil then to set up a SEP and make contributions, which can be deducted onyour 2023 return.

Easy Setup with SEP

Setting up a SEP is straightforward using the IRS model SEP,Form 5305-SEP. This form, which doesn’t need to be filed with the IRS, meetsSEP requirements. As the employer, you’ll get an immediate tax deduction forcontributions made on behalf of your employees, who will only be taxed on thesecontributions when they take distributions, typically in retirement.

For 2024, the maximum deductible contribution to a SEP-IRAis the lesser of 25% of compensation or $69,000 per employee (up from $66,000in 2023). If you're a sole proprietor who doesn’t receive a W-2, thecalculation for your contribution differs slightly, but the deduction isn’tlimited by the ceiling applicable to regular IRAs.

Employee Control and Minimal Administration

Employees manage their own SEP IRAs, including investmentchoices and tax-deferred earnings, though they cannot make contributions. Whileyou must meet certain requirements, such as offering the SEP to all regularemployees and ensuring contributions don’t favor highly compensated employees,these requirements are minimal compared to traditional retirement plans.

SEPs also eliminate the need for detailed records or annualIRS filings, with most recordkeeping handled by the SEP-IRA trustee, typicallya bank or mutual fund.

Consider a SIMPLE Plan

For businesses with 100 or fewer employees, a SavingsIncentive Match Plan for Employees (SIMPLE) is another option. SIMPLE IRAsallow employees to contribute, but they require employers to make certainannual contributions. While SIMPLEs have more setup restrictions than SEPs,they also have less stringent requirements than traditional retirement plans.

For 2024, employee deferrals for SIMPLE IRAs are capped at$16,000, with an additional $3,500 catch-up contribution for those aged 50 andolder.

Need More Information?

Additional rules and limits apply to SEPs and SIMPLEs.Contact our office for more details.

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